Summary of GREENHUNTER ENERGY, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes associated with them contained in our Form 10-K for the year ended December 31, 2008 and with the financial statements and accompanying notes included herein. The discussion should not be construed to imply that the results contained herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment by our management. The discussion contains forward-looking statements that involve risks and uncertainties (see "Forward-Looking Statements" above). Actual events or results may differ materially from those indicated in such forward-looking statements. Overview
Prior to April 13, 2007, we were a start up company in the development stage pursuant to Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises." Our plan is to acquire and operate assets in the renewable energy sectors of wind, solar, geothermal, biomass and biofuels. We currently have ongoing business initiatives at GreenHunter in wind through GreenHunter Wind Energy, LLC ("Wind Energy") and Wheatland Wind Power, LLC ("Wheatland"), in biodiesel and methanol through GreenHunter BioFuels, Inc. ("BioFuels"), and in biomass through GreenHunter Mesquite Lake, Inc, ("Mesquite Lake"). It is our goal to become a leading provider of clean energy products.
We believe that our ability to successfully compete in the renewable energy industry depends on many factors, including the location and low cost construction of our planned facilities, development of strategic relationships, achievement of our anticipated low cost production model, access to adequate debt and equity capital, and recruitment and retention of experienced management.
BioFuels
We completed building and began operating a 105 million gallon per year (nameplate capacity) biodiesel refinery at our Houston BioFuels campus during 2008 as well as 638 thousand barrels of product bulk storage for our terminal operations. We also have the ability to process up to 18 million gallons per year of contaminated methanol (a chemical used in biodiesel production). We also plan to construct a 20 million gallon per year capacity glycerin (a byproduct of biodiesel manufacturing) refinery on site if additional financing can be obtained.
The overhaul of an existing distillation process on the site was begun in April 2007. This process was commissioned and began processing contaminated methanol in September 2007. Commissioning of the biodiesel process was begun in mid June 2008, and commercial production of biodiesel began during August 2008. However, our refinery was almost immediately shut down as a result of Hurricane Ike on September 13, 2008. The refinery remained down for repairs through November 2008 and the facility resumed biodiesel production and the commissioning process the last week of that month.
If capital is available, we expect a technical grade glycerin project production unit to be completed and commissioned in 2009, and to have a glycerin distillation project which will produce US Pharmaceutical Grade Glycerin - Non Certified, in 2009 - also pending availability of funding for the glycerin project. All 638 thousand barrels of the Houston Terminal Project bulk storage tanks are presently erected. There remains some minor piping, pumps, instruments, containment and lighting repairs yet to be completed for final completion of the Houston terminal project.

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GREENHUNTER ENERGY, INC. FOR THE SIX MONTHS ENDED JUNE 30, 2009 We do not expect to operate at a profit before our biodiesel and glycerin refineries are completely constructed and operational. Due to current economic conditions of both available capital and the biodiesel markets overall, we made the decision during March 2009 to suspend operations of the biodiesel refinery until the biodiesel market conditions recover. Until the refinery resumes operations, we plan to provide terminal and distillation services at the refinery to provide a base level of cash flow. BioMass
In May 2007 we acquired Mesquite Lake, an inactive 18.5 megawatt (nameplate capacity) biomass plant located in El Centro, California, which we began refurbishing during 2008. During 2008 we found that the existing air permit for the plant was not sufficient to support our planned operations, and we are currently going through a re-permitting process with the appropriate governmental agencies. Due to this lengthy process, we are able to incorporate a possible expansion of up to 7 megawatt ("MW") as well as to terminate the existing power purchase agreement in order to pursue improved pricing for our output. Accordingly, we put this project on hold during the fourth quarter of 2008 while we go through the re-permitting process; we expect the new air permit to be issued in the latter half of 2009. We were successful at cancelling the prior existing power purchase agreement. We expect to execute a new power purchase agreement in the third quarter of 2009 and to resume construction sometime during the fourth quarter of 2009, assuming additional sources of funding are obtained.
Wind Energy
Until April, 2007, our primary business was the investment in and development of wind energy farms. We continue to own rights to potential wind energy farm locations in Wyoming, Texas, California, and Montana and continue to operate and gather data produced from wind measurement equipment located on these sites. We also continue to seek additional potential development sites, particularly those that would be near our other renewable energy projects. The nature of these wind energy projects necessitates a longer term horizon than our other projects before they become operational, if ever. Results of Operations
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008:
BioFuels Revenues
For the quarter ended June 30, 2009, we had total revenues of $1.7 million, consisting of $1.5 million in biodiesel sales and terminal services of $196 thousand, including storage and material handling charges. Revenues in the prior year period consisted of $186 thousand in methanol sales and terminal revenues of $282 thousand.
BioFuels Costs of Sales and Services
For the quarter ended June 30, 2009, we had costs of sales and services of $2.1 million compared to $1.0 million during the quarter ended June 30, 2008. Our 2009 costs included $1.6 million of costs related to our inventory consumption and losses which includes a lower of cost or market impairment of $144 thousand related to decreases in the value of both our raw materials on hand and the biodiesel produced at the plant, and $1.5 million in costs, including feedstock and chemicals, which are directly related to the production of our biodiesel which was sold during the quarter. The remaining $441 thousand in costs of sales and services were related to our terminal operations and excess capacity while our refinery was operating, including utilities, direct labor and other production costs. The prior year cost of sales and services consisted of $819 thousand in material and freight costs and $219 thousand in operating expenses related to our terminal and methanol processing activities during the period.

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GREENHUNTER ENERGY, INC. FOR THE SIX MONTHS ENDED JUNE 30, 2009 Wind Energy Project Costs
We incurred project costs associated with our wind energy projects of $70 thousand in the 2009 period compared to $120 thousand in the 2008 period. The decrease is the result of the projects in Montana expiring in second quarter of 2009 and were not renewed.
Hurricane repairs and losses
We recorded a credit of $9.3 million to hurricane repairs and losses, during the second quarter of 2009 due to the settlement and accrual of insurance proceeds from property damage and business interruption claims as a result of Hurricane Ike.
Depreciation Expense
Depreciation expense was $1.1 million during the 2009 period compared to $99 thousand during the 2008 period; the increase was due primarily to depreciation on our biodiesel refinery and terminal which began during August 2008.
Selling, General and Administrative Expense Selling, general and administrative expense ("SG&A") was $1.4 million during the 2009 period versus $5.8 million during the 2008 period, a decrease of $4.4 million.
Unallocated corporate SG&A decreased approximately $4.0 million between the two periods, decreasing from $4.2 million down to $205 thousand. Approximately $3.0 million of this decrease was due to the reversal of stock option expense of unvested options due to forfeitures. Salaries and personnel-related costs decreased $292 thousand, office related costs decreased $151 thousand, travel and marketing decreased $222 thousand, and professional fees decreased $360 thousand, all as a result of managements efforts to reduce operating costs.
BioFuels SG&A decreased $468 thousand, down from $1.2 million during 2008 to $698 thousand during 2009. This decrease was primarily due to decreased operations at our BioFuels campus during the current quarter.
BioMass SG&A was approximately $237 thousand during the 2009 period versus approximately $184 thousand during the 2008 period due to construction and planning of the Mesquite Lake biomass plant.
Wind Energy SG&A decreased approximately $54 thousand, down to $247 thousand resulting from decreased new project related costs compared to 2008.
Operating Income/Loss
Our operating income was $6.5 million in the 2009 period versus a loss of $6.6 million in the 2008 period, due principally to insurance proceeds received and accrued totaling $10.8 million and reductions in stock compensation expense.
Our BioFuels segment generated operating income of $6.8 million and loss of $1.8 million, respectively, during 2009 and 2008 due to insurance proceeds, increased revenues, and decreases in SG&A, as well as increased depreciation on the plant.
Our Wind Energy segment generated an operating loss of $311 thousand during 2009 as compared to an operating loss of $432 thousand during 2008 due to decreased project related costs as a result of fewer active projects.
Our BioMass segment generated operating losses of $264 thousand during 2009 and $184 thousand during 2008; the increase was due to increased SG&A costs related to the Mesquite Lake project.

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GREENHUNTER ENERGY, INC. FOR THE SIX MONTHS ENDED JUNE 30, 2009 Our unallocated corporate operating income was $199 thousand for the 2009 period, compared to an operating loss of $4.2 million during the 2008 period. The decrease was primarily due to decreases in our SG&A as a result of lower stock compensation expense and insurance proceeds received for assets damaged in Hurricane Ike.
Interest and Other Revenues
Interest and other revenues were $73 thousand during the 2009 period and $181 thousand during the 2008 period primarily due to higher cash balances on hand during 2008 as a result of our financing activities during the first quarter of 2008.
Interest, Accretion and Other Expense Interest, accretion and other expense increased from $616 thousand during the 2008 period up to $1.6 million during the 2009 period. This was a result of increases in our redeemable debentures, construction note, and working capital line of credit between the two periods.
Gain/Loss on Sale of Discontinued Operations We recorded a loss of $310 thousand in the current period on the sale of our Telogia plant which occurred during February of 2009 due to post-close adjustments.
Income/Loss from Continuing Operations We realized income from continuing operations before noncontrolling interests of $5.0 million in the 2009 period compared to a loss of $7.1 million during the 2008 period due to the insurance proceeds, decreased operating losses at our BioFuels plant as well as the decrease in stock compensation expense in the current period.
Preferred Stock Dividends
Dividends on our preferred stock were $250 thousand in the 2008 period versus $226 thousand in the 2009 period. The decrease was the result of the conversion of 5,750 shares of Series A Preferred Stock between March and June of 2009.
Net Income/Loss to Common Stockholders Our net income to common stockholders was $4.4 million in the 2009 period versus a net loss of $7.3 million in the 2008 period, primarily due to insurance proceeds received for claims resulting from Hurricane Ike and decreased stock compensation, which were partially offset by increases in depreciation expense, cost of sales and services, and interest expense.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008:
BioFuels Revenues
For the six months ended June 30, 2009, we had total revenues of $4.9 million, consisting of $4.4 million in biodiesel sales and terminal services of $363 thousand, including storage and material handling charges, and $166 thousand in processing revenue. Revenues in the prior year period consisted of $316 thousand in methanol sales and terminal revenues of $330 thousand.
BioFuels Costs of Sales and Services
For the six months ended June 30, 2009, we had costs of sales and services of $7.5 million compared to $1.2 million during the six months ended June 30, 2008. Our 2009 costs included $5.9 million of costs related to our inventory consumption and losses which includes a lower of cost or market impairment of $1.7 million related to decreases in the value of both our raw materials on hand and the biodiesel produced at the plant, and $4.2 million in costs, including feedstock and chemicals, which are directly related to the production of our biodiesel which was sold during the period. The remaining $1.6 million in costs of sales and services were related to our terminal operations and excess capacity while our refinery was operating, including utilities, direct labor and other

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GREENHUNTER ENERGY, INC. FOR THE SIX MONTHS ENDED JUNE 30, 2009 production costs. The prior year cost of sales and services consisted of $932 thousand in material and freight costs and $258 thousand in operating expenses.
Wind Energy Project Costs
We incurred project costs associated with our wind energy projects of $197 thousand in the 2009 period compared to $194 thousand in the 2008 period. The slight increase is due to the acquisition of additional wind projects in Shanghai, China, Texas, and Wyoming during the second half of 2008.
Hurricane repairs and losses
We recorded a credit of $10.8 million to hurricane repairs and losses, for the six months ended June 30, 2009 due to the settlement and accrual of insurance proceeds from property damage and business interruption claims as a result of Hurricane Ike.
Depreciation Expense
Depreciation expense was $2.1 million during the 2009 period compared to $187 thousand during the 2008 period; the increase was due primarily to depreciation on our biodiesel refinery and terminal which began during August 2008.
Selling, General and Administrative Expense Selling, general and administrative expense ("SG&A") was $5.6 million during the 2009 period versus $13.7 million during the 2008 period, a decrease of $8.1 million.
Unallocated corporate SG&A decreased approximately $8.4 million between the two periods, decreasing from $11 million down to $2.6 million. Approximately $7.9 million of this decrease was due to employee stock option expense fell to $137 thousand from $8.1 million; primarily as a result of options which were granted during the first half of 2008 which vested prior to 2009 or were forfeited during the first half of 2009. Office related costs decreased $82 thousand, travel and marketing decreased $264 thousand, and professional fees decreased $171 thousand, all as a result of managements efforts to reduce operating costs.
BioFuels SG&A increased $187 thousand, up from $1.8 million during 2008 to $2.0 million during 2009. This increase was primarily due to increases in property taxes and the use of professional consultants at our BioFuels campus in the 2009 period.
BioMass SG&A was approximately $400 thousand during the 2009 period versus approximately $308 thousand during the 2008 period due to construction and planning of the Mesquite Lake biomass plant.
Wind Energy SG&A decreased approximately $25 thousand, down to $530 thousand resulting from decreased new project related costs compared to 2008.
Operating Income/Loss
Our operating loss was $1.3 million in the 2009 period versus a loss of $14.6 million in the 2008 period, due principally to insurance proceeds received and accrued totaling $10.8 million and decreases in stock compensation, offset by the increase in total revenue.
Our BioFuels segment generated operating income of $3.8 million and loss of $2.5 million, respectively, during 2009 and 2008 due to insurance proceeds, increased revenues, and decreases in SG&A, as well as increased depreciation on the plant.

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GREENHUNTER ENERGY, INC. FOR THE SIX MONTHS ENDED JUNE 30, 2009 Our Wind Energy segment generated an operating loss of $745 thousand during 2009 as compared to an operating loss of $769 thousand during 2008 due to decreased project related costs as a result of fewer active projects in the later part of the 2009 period.
Our BioMass segment generated operating losses of $428 thousand during 2009 and $308 thousand during 2008; the increase was due to increased SG&A costs related to the Mesquite Lake project.
Our unallocated corporate operating loss was $3.9 million for the 2009 period, compared to an operating loss of $11.0 million during the 2008 period. The decrease was primarily due to decreases in our SG&A as a result of lower stock compensation expense and insurance proceeds received for assets damaged in Hurricane Ike.
Interest and Other Revenues
Interest and other revenues were $110 thousand during the 2009 period and $469 thousand during the 2008 period primarily due to higher cash balances on hand during 2008 as a result of our financing activities during the first quarter of 2008.
Interest, Accretion and Other Expense Interest, accretion and other expense increased from $980 thousand during the 2008 period up to $3.0 million during the 2009 period. This was a result of increases in our redeemable debentures, construction note, and working capital line of credit between the two periods.
Gain on Sale of Discontinued Operations We recorded a gain of $549 thousand in the current period on the sale of our Telogia plant which occurred during February of 2009.
Loss from Continuing Operations
We realized a loss from continuing operations before noncontrolling interests of $4.2 million in the 2009 period compared to a loss of $15.1 million during the 2008 period due to the insurance proceeds, decreased operating losses at our BioFuels plant as well as the decrease in stock compensation in the current period.
Preferred Stock Dividends
Dividends on our preferred stock were $500 thousand in the 2008 period versus $473 thousand in the 2009 period. The decrease was the result of the conversion of 5,750 shares of Series A Preferred Stock between March and June of 2009.
Net Loss to Common Stockholders
Our net loss to common stockholders was $4.3 million in the 2009 period versus a net loss of $15.6 million in the 2008 period, primarily due to insurance proceeds received for claims resulting from Hurricane Ike and decreased stock compensation, which were partially offset by increases in depreciation expense, cost of sales and services, loss on asset impairments, and interest expense.
Liquidity and Capital Resources

Cash Flow and Working Capital
As of June 30, 2009, we had cash and cash equivalents of approximately $4.0 million and a working capital deficit of $48.3 million as compared to cash and cash equivalents of $9.7 million and working capital of $12.1 million as of June 30, 2008. A significant component of our working capital deficit at June 30, 2009 was $42.4 million in non-recourse debt at our BioFuels location. This debt is non-recourse to GreenHunter Energy and is

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GREENHUNTER ENERGY, INC. FOR THE SIX MONTHS ENDED JUNE 30, 2009 secured by certain assets at our biodiesel refinery. Changes in our cash and working capital during the quarter ended June 30, 2009 are described below. Operating Activities
During 2009, we used $856 thousand in operating activities versus $20.4 million during 2008. This decrease in cash used was principally due to the cost-cutting measures across the organization as well as suspending production operations at our biodiesel refinery during the first half of 2009 until the capital markets and biodiesel markets improve.
We continue to have no operating sources of income with which to pay our operating costs other than those revenues generated at our biodiesel refinery, and the use of those revenues are restricted under our credit agreement with a bank. As a consequence, we are required to use cash provided by financing or investing activities to fund a significant portion of our operating activities. Financing Activities
During the six months ended June 30, 2009, we provided cash of $270 thousand from our financing activities. These activities included issuing $1.7 million in redeemable debentures, payment of $138 thousand in deferred financing costs related to these debentures, $222 thousand in borrowing on notes payable, and repayment of approximately $1.5 million under our notes payable. Details of these activities are described below:
Notes Payable
During 2008, we financed our annual insurance premiums in the amount of $1.6 million. This note beared interest at a fixed rate of approximately 3.84% and is payable in monthly installments through March 15, 2009. We paid the remaining balance of this note of approximately $421 thousand during the first quarter of 2009.
During June 2009, we financed a portion of our annual insurance premiums in the amount of $222 thousand. This note bears interest at a fixed rate of 6.1% and is payable in monthly installments through February 2, 2010.
9% Series B Senior Secured Redeemable Debentures During July 2008, we announced the offering of our 9% Series B Senior Secured Redeemable Debentures. These notes have a term of five years. These debentures are non-recourse to GreenHunter Energy and are secured by a second lien on our Mesquite Lake common stock. During the first quarter of 2009, we raised $1.6 million, net of selling expenses, under this program.
Nonrecourse Term Loan and Working Capital Loan BioFuels has a credit agreement with a bank which provides for a $33.5 million construction/term loan facility and a $10 million working capital facility in connection with the development, construction and operation of our BioFuels campus. The construction/term loan portion of the facility is for a term of six years and the working capital facility revolves annually upon conversion of the construction loan to a term loan. Both facilities have prime (prime plus 3%) and LIBOR (LIBOR plus 4%) based interest rate options. During 2009, we made repayments of $1.1 million under the construction/term loan facility. During March 2009, we determined that we were not in compliance with certain covenants of the credit agreement and have accordingly classified the entire balance due as a current liability. On June 25, 2009, the Credit Agreement for the non-recourse construction and working capital loans was amended. Pursuant to the terms and conditions of the amendment, the lender has agreed to waive any claims of events of default until November 15, 2009. Additionally, due to the settlement of certain business interruption and property damage insurance claims with various underwriters related to damages sustained at GreenHunter BioFuels from Hurricane Ike in September, 2008, the lender received a significant paydown of approximately $4.5 million on its non-recourse construction and working capital loans in July 2009, escrowed an

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GREENHUNTER ENERGY, INC. FOR THE SIX MONTHS ENDED JUNE 30, 2009 additional $500 thousand principal payment for its scheduled payment date, escrowed all interest due on the loan through November 15, 2009, and postponed the repayment of the balance of its loans until November 15, 2009. All remaining funds due from insurance proceeds will be used at GreenHunter BioFuels to fund existing working capital requirements.
Investing Activities and Future Requirements Capital Expenditures
During the first six months of 2009, we invested approximately $707 thousand in capital expenditures, which was primarily comprised of a glycerin desalting project at our BioFuels campus.
Forecast
For 2009, we have not adopted a formal corporate capital expenditure budget due to our current lack of capital resources. We have formulated specific project budgets and will adopt a formal corporate capital expenditure budget upon securing necessary financing commitments.
BioFuels
While we do not have a formal capital expenditure budget in place, we plan to seek financing for approximately $1.8 million in capital projects at our Houston campus. These projects would consist of $500 thousand for glycerin desalting, $360 thousand for a water wash system, $580 thousand for improvements to our process, and $330 thousand for other upgrades. If sufficient capital is available, we would also pursue completion of our glycerin refinery for a total cost of approximately $4 million. Currently, due to lack of operating capital and the current biodiesel market, we have temporarily shut-down biodiesel production and methanol processing, and laid off most of our BioFuels employees. We estimate that our Houston campus will be restricted to terminal storage activities for most of 2009.
BioMass
BioMass is seeking financing for approximately $24 million in capital expenditures in 2009 for refurbishment and expansion costs at the Mesquite Lake biomass facility in El Centro, California.
Wind Energy
Wind Energy is not currently planning on any capital expenditures in 2009 due to adverse economic conditions for wind projects.
Obligations Under Material Contracts
Below is a brief summary of the payment obligations under material contracts to which we are a party, other than the debt and convertible debt obligations described above.
Consulting Agreement with former owner of Mesquite Lake We have granted the former owner of Mesquite Lake the non-exclusive right to . . .